U.S. Stocks Take A Dive Amidst Poor Economic Forecast

U.S. stocks take a dive amid poor economic forecast

Major U.S. market indices plummeted on Wednesday following a prediction of a slowdown in economic recovery.

The Dow Jones Industrial average dropped 265.42 points, or 2.49 percent, to 10,378.83, while the Nasdaq plunged 68.54 points, or 3.01 percent, to 2,208.63. Standard and Poor’s 500 index lost 31.59 points, or 2.82 percent, to settle at 1,089.47 at closing time.

Late Tuesday’s trading saw stocks trimmed losses after the announcement by the Federal Reserve that it will channel the earnings from mortgage bonds investments to buy some government debt in order to help send long term rates on mortgages and corporate debt a bit lower.

Last June, the Fed described the economic recovery as “proceeding”, but investors took noticed when the Fed on its latest statement said that “the pace of recovery in output and employment has slowed in recent months.”

The gloomy forecast by the Federal Reserve caused a disappointment in investors, who went on a massive sell-off across the board, reflected by indices dropping sharply which offset any gains made earlier in the year.

The market sentiment was not helped by weak economic data from the U.S. and Asia. The U.S. trade deficit ballooned unexpectedly in June to 49.9 billion dollars, the highest mark in 20 months. China’s manufacturing rate also showed some shrinking.

The trade gap grew at its fastest monthly rate ever and now amounts to $49.9 billion, further weakening prospects of a sustained economic recovery.

The CBOE Volatility Index rose to13.3 percent, showing a sharp rise in investor anxiety.

Posted by James Fried on Thursday August 12 2010, 11:09 AM EST. All trademarks acknowledged. Filed under Featured News, Finance. Comments and Trackbacks closed. Follow responses: RSS 2.0